Abolishing Planning Commission will free states from Delhi's grip

Announcing the abolition of the Planning Commission during his Independence Day address, Prime Minister Narendra Modi explained the context of the decision. A new institution was needed to represent contemporary India, he said, because "state governments... (were) at the centre of development" and "India's federal structure was more important today than in the last 60 years". In fact, the word "federal" was used several times and represented a key motivation.

The stress on the states is crucial to understanding Modi's programme. At the end of five years, if his term is a success, if India has begun to realise the possibilities of a manufacturing revolution, it will very substantially be a product of how far states and state governments have taken forward Modi's mandate. If the states fail, Modi too will falter.

Right Connect

Modi is sensible enough to understand announcements in Delhi won't immediately translate into booming factories in Orissa. Neither will welfare laws written in the sanctuary of Lutyens' zone ensure well-being for a far-flung village in Tripura. Local ownership is absolutely imperative.

Rajiv Gandhi, too, knew the Union government could not do everything. Unfortunately, the mechanism he chose to redress this was unviable. He sought to empower panchayats and give them financial and jurisdictional powers that were beyond their capacities. In promoting the mantra of "PM to DM" (prime minister to district magistrate and/or Delhi to district/panchayat), the Rajiv plan ended up undermining the institution in the middle: the CM (chief minister) or the state government.

Political Weapon

Politically, the attempt to weaken state governments was a Congress response to the rise of regional parties. That only about 10% of Union government funding for state plans allows state governments the luxury of spending it as they deem fit — outside of a framework designed in Delhi — is emblematic of this. In the UPA years, the Planning Commission and the environment ministry became instruments to harass states with non-Congress governments.

The shutting down of the Planning Commission is part of what can be termed Modi's D-E-F mission: restoring the Dignity of state leaderships; Empowering state governments; Facilitating economic development of states. How will this D-E-F be carried forward?

While in Gandhinagar, Modi often pointed out that he found it demeaning that elected chief ministers needed to go to glorified super-bureaucrats in Yojana Bhavan to plead for assistance. What should have been a political process, and a negotiation between the Union and state governments, became the dictation of a bunch of self-important Wise Men (and Women). Some members of the Planning Commission thought it fit to lecture elected chief ministers, merely because they controlled taxpayer money. This was at the root of Modi's opposition to the Planning Commission.

Move now to empowerment. In recent days, a few commentators have sought to distinguish between changes in economic laws and merely making government efficient and cleaner. The second, they have argued, is all Modi has achieved. Harder reform involves amending laws, and that is something he has ducked. In contrast, these commentators have pointed approvingly to Vasundhara Raje, the Rajasthan chief minister who wants to amend labour and land acquisition laws.

Is this assessment fair? For a start, it is simply not true that Modi's Gujarat model did not involve legislative innovation. For example, take the Gujarat Special Investment Region Act of 2009. It is a model law for incubating manufacturing and industrial zones, and has implications for building urban clusters and new cities.

Labour Gains

That apart, any government — even one with a single-party majority in the Lok Sabha — has limited political capital. This needs to be spent judiciously and only when necessary. It is for this reason that Modi, during the election campaign, suggested pushing changes in labour laws to the states. Let states compete to provide better amenities to their residents, better investment opportunities for businesses and, inevitably, more relevant labour laws.

The government in Jaipur has taken Modi at his word. It has introduced changes in labour laws that will be Rajasthan-specific but will require the concurrence of the Union government. On his part, Modi is committed to supporting Vasundhara Raje. If a non-BJP government in another state makes similar changes in labour laws, Modi would be expected to give equal support.

Finally, there is the question of facilitation. The Union government can provide expeditious and transparent financial and environmental clearances for an economic project. It can sign counter-guarantees where needed. Yet, in the final reckoning, the project will have to be carried forward by the individual state government and by a go-getter chief minister.

That was what Modi did in Gujarat as chief minister. As prime minister, he can promise not to be biased against a state, but he cannot spoonfeed it either. A state's future is for its government to make or mar. That is the essence of Modi's post-Planning Commission federalism.